California's cannabis market is going to be bigger than beer

California began the sale of recreational marijuana on January 1. The market is expected to hit $3.7 billion by the end 2018, and that number will increase to over $5 billion in 2019. Legal marijuana will be a tax windfall for the state.

Recreational cannabis sales began in California on January 1 — and the market is expected to haul in billions in revenue next year as dispensaries roll out across the state.

A report from the cannabis industry research firm BDS Analytics estimates sales of cannabis to hit $3.7 billion by the end of 2018 alone, and predict that number will increase to $5.1 billion in 2019 as more dispensaries come online.

For comparison, beer sales in California hit $5 billion in 2017, according to industry research group IBIS World.

California — the world's sixth largest economy with a population of close to 40 million — will be a huge chunk of the total market for cannabis in North America. Legal marijuana sales hit $9.7 billion across the seven states where recreational marijuana is legal, excluding California, and Canada in 2017 alone, according to BDS. That number is expected to hit $24.5 billion in sales by 2021, despite continued federal prohibition.

On top of that, the price of pot is expected to increase up to 15% as California applies a new excise tax on recreational sales. According to Green State, the price of an eighth-ounce of marijuana — now around $54 including tax — is approximately $65, though local municipalities may levy different fees.

While it's hard to say how this will affect the market, there is a concern here among some industry analysts that high prices may divert some customers to the black market, where they an avoid the extra fees.

"If there are only 10 regulated dispensaries in the East Bay and I live 45 minutes from one of them, I'm going to call my dealer or my unregulated delivery service like I've done for the last five years," Hezekiah Allen, the executive director of the California Growers Association, told Bloomberg.

"What we need to do in California right now is ensure that every Californian that wants to consume cannabis can buy it at an affordable price, conveniently, from a licensed retailer," Allen added.

All that extra tax, however, will likely be a windfall for California. By 2021, BDS Analytics predicts California will rake in up to $1.4 billion from taxes on recreational marijuana purchases.